Price

• Price is not just a math problem, It’s a psychology test
• Price sends important signals to customers - quality, prestige, uniqueness, and others
• With the enhancement in tech and the internet, price transparency makes setting the right prices all the more important — and difficult.
• Setting prices too high drives customers away and destroys a company’s sales.
• A company’s Pricing Strategy is:
  • Determinant of its image in the marketplace
  • Influenced by the pricing strategies of its competitors, and
  • significant element in the value that customers perceive its products or services provide.

Three Potent Forces:

• Price Conveys Image
  • A company’s pricing policies communicate important information about its overall image to customers.
• Competition and Prices
  • When setting prices, entrepreneurs should take into account their competitors’ prices, but they should not automatically match or beat them
  • Two factors are vital to studying the effects of competition on small company’s pricing policies:
    • the location of the competitors and
    • the nature of the competing goods and services
  • Competitors’ prices can have a dramatic impact on a small company’s prices, so entrepreneurs should make it a habit to monitor their rivals’ prices, especially on identical items
  • Attempting to undercut competitors’ prices is a dangerous strategy, and may lead to a price war, one of the deadliest games a small business can play.
• Focus on Value
  • Ulitmately, the “right” price for a product or service depends on one factor: the value that it provides for a customer
  • Two Aspects of Values:
    • Objective Value, is the price customers would be willing to pay if they understood perfectly the benefits a product or service delivers. Unfortunately, few, if any, customers can see a product’s or a service’s true objective value
    • Instead, they see only its PERCEIVED VALUE, which determines their price.
  • The price you get for a product is a function of what it’s truly worth — and how good a job you do communicate that value to the end user,”
  • Thus, for most shoppers (Customers), three reference points define a fair price:
    • The price they have paid for the product or service in the past,
    • The prices competitors charge for the same or similar product or service, and
    • The costs a company incurs to provide the product or service.

Pricing Strategies and Tactics - Introducing a New Product

Entrepreneurs are often nervous about setting the price of a new product when they have no precedent on which to base their decisions. If the new product’s price is excessively high, it is in danger of failing because of low sales volume. However, if its price is too low, the product’s sales revenue might not cover costs.

When pricing any new product, the owner should try to satisfy three objectives:

1. Getting the product accepted: (Objective 1)
2. Maintaining Market Share as Competition Grows (Objective 2)
3. Earning a Profit (Objective 3)

Product Position

• Revolutionary Products
  • New and unique. They transform existing markets.
  • Acceptable Price range is wide
  • We need to invest in educating customers about them
• Evolutionary Products
  • They are offering upgrades and enhancements to existing products.
  • The acceptable Price Range is not Wide.
  • Potentially Initiate a Price War
• Me-Too Products
  • Offering the same basic features as existing products on the market.
  • The acceptable price range for these products is quite narrow.